Hipgnosis Songs Fund Limited has announced proposals to sell 29 catalogues to Hipgnosis Songs Capital for $465 million. The sale is part of a strategic plan to reduce debt and fund a share buyback program, with the aim of narrowing the discount and re-rating the company's share price. The proposals also include the repayment of $250 million drawn under the company's revolving credit facility and the introduction of lower investment advisory fee tiers. These proposals are subject to shareholder approval at an Extraordinary General Meeting and the 2023 Annual General Meeting.
The board and the investment adviser believe that the company's share price has not reflected its fundamental value over the past 18 months. A consultation with major shareholders confirmed the importance of addressing the current share price through a share buyback program and a reduction in the company's revolving credit facility drawings. The sale of the 29 catalogues is seen as the smallest magnitude possible to provide the required capital while protecting the strength of the remaining portfolio.
The board and the investment adviser believe that the best way to maximize long-term shareholder value is to buy, hold, and actively manage culturally important assets that will deliver income and capital growth over time. The company reported its best like-for-like income growth of 12.1% year-on-year in the financial year ended March 2023, and they are confident of showing strong further growth.
The first portfolio of catalogues will be sold to Hipgnosis Songs Capital for $440 million. The sale is expected to realize a total net return of 44% over a 3-year weighted average life of ownership. The remaining portfolio will have an increased concentration of culturally important and successful songs, with the company retaining an interest in 47 of Rolling Stone's 500 Greatest Songs of All Time and 85 Spotify Billions Club songs. The catalogues will continue to be managed by Hipgnosis Song Management.
The sale is conditional upon approval by independent shareholders at the Extraordinary General Meeting and the approval of the continuation resolution at the 2023 Annual General Meeting. The company expects to pay approximately $6.7 million in corporation tax on the sale.